Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 20

Pricing Decisions
Assume that Cold Rock sells ice cream for $4 per quart. The cost of each quart follows:

One of Cold Rock's regular customers asked the company to fill a special order of 400 quarts at a selling price of $3.00 per quart for a fund-raising picnic for the Special Olympics. Cold Rock has capacity to fill it without affecting total fixed costs for the month. Cold Rock's general manager was concerned about selling the ice cream below the cost of $3.25 per quart and has asked for your advice.
Required
a. Prepare a schedule to show the impact on Cold Rock's profits of providing 400 quarts of ice cream in addition to the regular production and sales of 20,000 quarts per month.
b. Based solely on the data given, what is the lowest price per quart at which the ice cream in the special order could be sold without reducing Cold Rock's profits
c. What other factors might the general manager want to consider in setting a price for the special order